By: Dr. Mike Campbell

The German economy is widely regarded as the powerhouse of Europe and had been seen to be leading the recovery in the region with (relatively) impressive growth figures which made the performance of the rest of the Eurozone look positively lack-lustre. However, data just released for the performance of Germany in Q2 are extraordinarily anaemic, coming in at a growth figure of just 0.1% for the quarter. The figures, produced by the German national statistics office, Destatis, also included a revised figure for Q1 growth which was weaker than first believed. The revised Q1 data was adjusted from 1.5 to 1.3%

Destatis noted that whilst German exports had risen over the quarter, this had been outstripped by the growth in imports and had a negative effect on growth for the quarter. Domestic demand within Germany also declined over the quarter, contributing to the weak economic performance.

Obviously, Germany is not immune from the general weakening of the recovery around the world. Since Germany is a leading exporter of manufactured goods, any weakness in the global marketplace is bound to have a knock-on effect on German growth. Whilst the Euro has fallen significantly against the Yen recently, it has stayed broadly stable against the US Dollar. During Q2, the Euro was broadly stable against the Yen (starting and ending the quarter at approximately the same value), but has weakened significantly in recent weeks because of renewed concerns over European sovereign debt.

In the wider context, governments are faced with a dilemma: the sovereign debt crisis is causing currency volatility and sapping confidence from the markets, but by imposing the draconian austerity measures needed to tackle the debt mountains, economic growth may be choked off leading to a double-dip recession, falling revenues and increased debt default risks.